The USD/CNH currency pair is currently trading close to its recent lows. This is mainly due to the overall weakness of the US dollar and a notably low USD/CNY fix. The pair was last seen at 7.0427, showing slight bearish momentum as the RSI nears oversold levels. If it breaks below the support level of 7.0380, we could see further declines. Meanwhile, resistance is at 7.08. The latest low fix was 7.0638, marking a 14-month low. This situation is helping the RMB appreciate gradually. Analysts have pointed out that the fixing pattern has been on a steady decline since April 2025, indicating a strategy to maintain market stability while allowing the RMB to strengthen. For the past two weeks, both the spot rate and Bloomberg consensus for the daily fix have been lower than the actual fix. This trend may lead to continued downward pressure if policymakers stay on the current course or could result in temporary stabilization if the pace slows. Another lower fix or continuous weakness in the USD could drive further declines.

US Dollar Weakness

The weakness of the US dollar and a focused effort to strengthen the yuan are both pushing the USD/CNH pair lower. The consistently low daily fix serves as a clear sign of a planned approach toward gradual RMB appreciation. This managed descent has been orderly since spring 2025. The broad softness of the dollar isn’t unexpected, as the US Dollar Index (DXY) fell below 100 last week for the first time this year. Markets are now predicting a high chance that the Federal Reserve will keep interest rates steady in its January 2026 meeting, following several lower inflation reports. This stands in contrast to late 2024 when expectations for rate hikes were still strong. On the other hand, China’s Q3 2025 GDP came in at a surprising 5.1%, raising confidence in the domestic economy. Data from November by the State Administration of Foreign Exchange also indicated three consecutive months of net portfolio inflows, suggesting that international capital is returning. A stronger yuan supports the narrative of stability and draws in more investment.

Implications for Traders

For derivative traders, this environment suggests preparing for further downside in USD/CNH. Buying put options with strike prices below the 7.0380 support level, perhaps aiming for the psychological 7.00 mark, seems like a sound strategy. The clear policy direction offers strong support for this outlook in the new year. However, it’s important to note that the RSI is nearing oversold territory, which might lead to a temporary pause or bounce. To manage this risk, using bear put spreads could be a wise approach since it lowers upfront costs and defines the risk if the pair stabilizes at current levels. The key will be to monitor whether policymakers adjust the pace of setting the fix lower in the coming weeks. Looking back, this trend represents a significant reversal from the yuan’s weakness experienced throughout much of 2023 and 2024, during which the pair consistently traded above 7.25. The current controlled strengthening marks a significant shift in policy, making the drop below 7.08 feel more like a sustained movement rather than a brief market fluctuation. Create your live VT Markets account and start trading now.

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